Brian Lee
Aug 12, 2025
Part of: Option
Greeks
Option theta is another key “greek” that tracks how rapidly an option loses time value as expiration approaches. Theta is typically negative for option buyers because each passing day chips away at the premium they paid. For sellers, theta is positive: they benefit from the erosion of time value.
Mathematically, theta is the partial derivative of the option price (V) with respect to time (t):
\[ \Theta = \frac{\partial V}{\partial t} \]
Weekly covered call strategies rely on theta to collect premium. Since time decay accelerates in the final days before expiration, short-dated options lose value quickly. By selling calls each week, you can capture this decay repeatedly.
When paired with Option Delta, theta gives a more complete picture of risk and reward. Delta estimates price sensitivity, while theta shows how much value the option loses simply due to the passage of time.